Wednesday, November 29, 2006

Wal-Mart Plans to Test Online Films

The decade-old DVD moved two small steps closer yesterday to technology’s endangered-species list.

Wal-Mart, the country’s largest seller of movies, announced that next year it will begin testing a video download service on its Web site. Wal-Mart did not reveal its partners, but media executives involved in the deal said that all the major studios are either on board or in active talks with the retailer, and that Hewlett-Packard is providing the technology for the download site.

In anothersign that therace to put video content online is accelerating, the Internet firm BitTorrent, once a pariah for enabling vast unauthorized video file-sharing, plans to announce today that it has struck distribution deals with eight media partners, including 20th Century Fox, Paramount and MTV Networks.

It is a strange juxtaposition: BitTorrent, with 35 employees, and the company whose dominance in video sales is so threatened by online file trading, 1.8-million-employee Wal-Mart.

DVDs are not going away any time soon. A vast distribution system is still built around them, and downloading can still be slow and cumbersome. But the latest steps show that studios and retailers have concluded that the future of home-video sales lies online.

That conviction has been reflected this year in a flurry of deals; Apple, Google, Amazon and AOL have all rolled out video stores. Apart from Apple’s iTunes, the online stores have enjoyed limited success so far, but that has not stopped the momentum.

Media companies have even become willing to strike partnerships with firms whose popular technology is primarily used for trading unauthorized content. For example, YouTube, the video sharing site now owned by Google, reached rights agreements with the music labels Universal Music Group, Sony BMG, and some TV networks — despite the relative freedom users had during YouTube’s early days in uploading and watching copyrighted material.

The media companies are not only attracted to the large online audiences of companies like BitTorrent, but also want to enlist their support in eradicating unauthorized content. The media companies in the BitTorrent deal say that the Internet firm has pledged to police its network for illegal trading.

“They are making a big commitment to us to filter the site,” said Jamie McCabe, executive vice president at 20th Century Fox. “When anything is up there that is not legitimate, they’ve pledged to take it down.”

For now, at least, the move by Wal-Mart, which accounts for 37 percent of the country’s video sales, is likely to make the larger splash.

Though its video download store will officially open for business next year, Wal-Mart took a tentative first step yesterday. Customers who buy the physical DVD of Warner Brothers’ “Superman Returns” in a Wal-Mart store will have the option of downloading a digital copy of the film to their portable devices for $1.97, personal computer for $2.97, or both for $3.97.

The dual approach, marrying downloads to the purchase of an actual DVD in the store, reflects the retailer’s commitment to protecting its bottom line. “We feel like it is really important that the DVD business stays healthy and stays quite central to consumers’ lives,” said Kevin Swint, a divisional merchandising manager at Wal-Mart.

Not every movie studio has yet formally signed onto Wal-Mart’s effort. According to two studio executives involved in the negotiations, some studios are grappling over the extra charge of $1.97 to $3.97 for DVD buyers to download the movie. Some studios feel that it would be better to provide the downloads free to DVD buyers, making them clearly a promotion, so that those prices do not become fixed in customers’ minds as the going rate for movies online.

While Wal-Mart’s coming effort might get more scrutiny, BitTorrent’s approach to selling video online represents a more radical departure from current video stores on the Web — and an attempt to fix some of the problems that have plagued online video purchases, like excruciating download times.

BitTorrent’s founder, Bram Cohen, 31, introduced the network in 2001 at the height of the legal battles over Napster, the peer-to-peer pioneer. His service was remarkably efficient; when a user tries to download a media file, the network fetches pieces of that file from the computers of nearby users on the network and reassembles them on the user’s computer.

Fat video files that might take over an hour to download over iTunes can take just minutes over BitTorrent if other, nearby users have the file on their hard drives.

BitTorrent’s software currently sits on 80 million computers, and Internet service providers say that file trading on the service — most of it illegal — now accounts for 40 percent of all online traffic.

The company, which incorporated in 2003 and raised $9 million in venture capital, has recently gotten more serious about policing its network. Last year, it reached a deal with the Motion Picture Association of America to remove infringing content from the search index on its Web site. And in May, Warner Brothers agreed to sell its TV shows and movies through BitTorrent’s network, though the effort was delayed until more partners were enlisted.

Other partners in the deal to be announced today include Lionsgate, the technology cable channel G4 and Starz Media, a programming production and distribution company owned by Liberty Media.

Ashwin Navin, BitTorrent’s president, said that as the firm built a business in authorized distribution, it viewed piracy as a competitive threat. So it plans to build a more attractive alternative that will convert its traditional users while luring those who have not yet waded into the world of digital downloading, he said.

In the new service, BitTorrent’s partners will upload authorized versions of their TV shows and films onto the network. No pricing details have yet been announced. Files will be protected by Microsoft’s content management system, and files will play right inside the user’s Web browser. Users who buy content will have to enter a special encryption key before watching the movie, and they will only be able to view it on two computers — say, a desktop and a laptop they might bring with them on a business trip.

Mike Goodman, an analyst at the Yankee Group, says networks like BitTorrent shift bandwidth costs to users. “You can argue that peer-to-peer will ultimately be the cheapest way to distribute this content,” he said.

Studio executives agree, and think BitTorrent will take its place alongside the giants like Wal-Mart in the emerging digital download world.

“I think everyone is going to do a BitTorrent deal,” said Thomas Lesinski, president of Paramount Pictures Digital Entertainment. “You have to be in a position where you make your content available everywhere the consumer is interested in downloading it.”